- BUDGETING -                                      

“Most people don’t plan to fail. They simply fail to plan.”

After your test correction do “Test your $$ sense”

BE PREPAREDHow do you build a house?

How would you go on a trip? Map it out Gather resources Consider options Take action

Floor plan Gather resources Consider options Take action

When you operate without a personal budget, you are spending your money without a guideline or plan.

How do you manage $$$?

Spending PlanBUDGET

A plan for tracking and managing your income and

expenses“A Rich man knows exactly how much $ he makes and where it is

going. A poor man has no idea!”

Why a spending plan?Gives a person an understanding

of where their money is going.– Tracks income and expenses

Helps meet your financial goalsHelps live within your incomeReduces the need for using credit

cards and going into debt.

2 parts to a PlanIncome

–Money earned• Job, savings, parents, interest, gifts

• Gross and NetExpense

–Money spent• Fixed and Variable / flexible

Budget Buster (off to side) Give yourself 5 points if you have a budget. Give yourself 5 points if you have a checkbook or a debit card. Deduct 3 points if you have ever bounced a check or gone over on

your card. Deduct 2 points if you bought something this week without

comparison shopping. Give yourself 2 points if you bought a store brand, rather than a name

brand item this week. Give yourself 3 points if you have a savings account. Give yourself 5 points if you added any money to your savings

account this week. Give yourself 3 points if you bring a lunch from home or eat school

lunch. Deduct 3 points if you go out for lunch more than 2 times a week. Deduct 5 points if you routinely carry more than $10.00 in your purse

or wallet. Give yourself 5 points if you have a method of recording what you

spend. – Total your points. The winner is the person with the most points.

Gross IncomeThe total amount of income

earned before deductions are made.

• You must earn $15.00 to buy a $10.00 item.

Net IncomeThe amount of income left

after deductions are taken out.

Now you get to spend!–How do your values influence your spending habits?

Income Gumball machine

represents components of the financial planning process

Income is money earned– Gumballs going into the

machine– Wages from a job,

allowance, gifts

Expenses - money spent

*= Fixed Expenses which

usually do not vary in amount and must be paid on a regular basis

(mortgage, car payment, insurance…)

Variable Expenses which vary

from week to week or month to month

(clothing, food, entertainment…)

Expenses Expense is money spent Money going out of the

gumball machine– Fixed expenses may have

a fixed amount due each month and are contractual

– Flexible expenses can vary each month in the amount owed and are not contractual

Spending plan activityDecide if each item is

income, a fixed expense, or a flexible expense

Spending plan activityRent

Fixed expense

Wages

Income

Spending plan activityGroceries

Flexible expense Internet bill

Fixed expense

Spending plan activityTips

Income

Utilities

Fixed expense

Spending plan activityGift from family

Income

Savings Fixed expense

Spending plan activityAutomobile registration

Fixed expense

Eating out/Snacks

Flexible expense

Spending plan activityScholarships

Income

HobbiesFlexible expense

YOUR MONEYNET LOSS When a person has

more expenses than income during the time period of the spending plan.

If this occurs, either increase the income or decrease the expenses.

NET GAIN When a person has

more income than expenses.

Remaining income can be allocated into savings, investing, or spent.

Take 20 Beans

STAND UP:For the rest of your life you

cannot spend money on…. (sit down if you cannot go with out spending money)

Opening day for movies

Manicure/pedicure Athletics/gym

memberships

Hairstyles that have expensive treatments (color, perms, etc.)

Going out to eat more than 3 times a month

Expensive Vacations

Name brand clothes, shoes, accessories

Data plan Cell phones

Cable Channels Internet

Identify your Needs vs wants when figuring out how to spend you money.

NEEDSEssentials…

the basics of life

WANTSSimply increases the quality of living

You just got a surprise gift $100!

What will you do with it? 1. Spend it right away for something I want—“A shirt in that new shade

of blue will look great on me!”

2. Spend it right away for something I need— “My running shoes are falling apart. Now I can get a new pair to break in before track season starts!”

3. Use it to get more money out of Mom or Dad—“That MP3 player I’ve been wanting is $200. I wonder if Mom or Dad will give me the extra $100?”

4. Spend some/save some—“College is in my future, so I want to be sure to have some money to get me started. But it also is important to have a little fun, like taking in a movie and having dinner with my friend.”

5. Help someone out— “Our rent went up $50 a month. Mom doesn’t know how she’s going to pay for it. This money could help her out for a couple of months.”

6. Save it all— “A penny saved is a penny earned. If I put this into my bank account it will earn interest and I’ll have money when I really need it. My car insurance is due in a few weeks.”

What do you value? - Money Personality

1. Spend it right away for something I want (you want a lot of stuff and you want it now)2. Spend it right away for something I need

(money is unimportant, but it helps you get the things you want and need)

3. Use it to get more money out of Mom or Dad(you use money to make you feel important)

4. Spend some/save some (you are not concerned with money, no reason to worry about it)

5. Help someone out(you are not concerned with money, no reason to worry about it)

6. Save it all(you value money for the security it gives you)

Group Juggle How Do You

Balance it all?

SPENDING PLAN PROCESS1. Set Financial SMART

Goals Specific Meaurable Attainable Realistic Time bound

To save $5,000 for a car down payment, I will deposit $208 into savings each paycheck for 2 years.

Step 2- Get organizedDetermine the appropriate record

keeping format to use.– Notebook, keep receipts, debit card

tracking, cell phone or computer program,…

Select categories of spending. Select time period for income and

expenses.

Spending Plan3. Decide on your Plan

Creating a Budget Video

Make A Budget / Plan1. Track your spending to find out where your money

is going.2. List and add up all of your monthly expenses

($612.00)3. Add up your monthly income ($750.00)4. Balance your monthly expenses to match your

monthly income. – Is it a Net Loss or a Net Gain?– Rework the expense amounts until these 2 areas balance. – This is your budget. ($138.00 left)

POSSIBLE BUDGET ITEMS

*auto—fuel and maintenance or transportation

cable TVcar paymentclothingclubs or organization feescosmetics*credit card or loan paymentsDonationseating out*electricityentertainment*foodHair cuts

hobbiesHolidays/birthdays/giftshome interior/exterior (yard)* house payment or renthousehold supplies (cleaners,

paper products)insurance* medical bills* medication natural gaspet carephonesavingsschoolingvacation

The Costs Add up Daily Latté

– $3.75 each time– $1,365 per year

Eating lunch out 5 days per week – $5-$10 each time– $1,300-$2,600 per year

Daily sport drink– $2.00 each daily– $728 per year

Monthly haircut– $35.00 per month– $420 per year

Weekly date night at the movies with popcorn– $30 per week– $1,560

BUDGET JAR

Budgeting % allowance for each

monthHousing 25-35% Savings 10%

Food 15-20% Insurance 2-8%

Personal care/clothing 10% Recreation/entertainment 2-6%

Transportation 10% Charity Misc./unexpected 3-10% Utilities/phone 4-7%

Study Guide Figures

How does the typical family spend their pay check?

 Remember living expenses vary depending on where you live, age, and personal goals.

$2500 net pay check $600 (30%) Housing $440 (22%) Food $200 (10%) Clothing $40 (2%) Personal $180 ( 9%) Other $140 (7%) Recreation $160 (8%) Insurance $280 (14%) Transportation $280 (14%) Utilities, home repairs

30%

7%22%

8%

10%

14% HousingRecreationFoodInsuranceClothingTransportation

4. ImplementTrack the money that you spend

throughout the month both variable and fixed. Update your budget as expenses change.

Spending Plan Template

Income Amount Wages $Total Income $

Expenses Amount Percentage of income used for each expenditure

Housing Rent or mortgage Utilities Maintenance Insurance

$

Food Eating out Groceries

$

Total Expenses $

Total Income – Total Expenses

$

Vanessa’s Budget Vanessa's monthly student worker paycheck earnings

after taxes is $412. She also has a part-time waitress job on the weekends and earns $168 per month after taxes.  Her parents supplement her earnings with $200 a month. She adds that to her monthly paycheck earnings to get a total monthly income of $780.

Next, Vanessa adds up her fixed expenses: rent (she shares an apartment with two others and pays 1/3 of the rent) $200, and she is responsible for her car insurance which is $128 per month.  She has a car that her parents have given her, so she does not have a car loan. She is very lucky that her parents pay her tuition and fees for school each semester.  She is also on her parent’s health insurance and that takes care of any doctor visits when she gets sick as well as visits to the dentist.

Now Vanessa adds up her variable expenses. Her share of utilities is usually $100 per month and that includes cable.  She spends about $40 per month on her cell phone calls.  Groceries average around $80 per month,  Gasoline is another $40 per month.  And she figures she’ll be able to spend $40 per month on clothing, movies and going out with her friends.  She adds all these up and sees that her variable expenses total $300 per month.

Vanessa subtracts her total expenses of $628 from her income of $780 to get $152.  Vanessa knows that she will need probably about $20 per week for snacks, incidental school supplies, etc.  That leaves $72.  Since Vanessa will have some money left over after taking care of her expenses, she decides to put at least $60 per month into savings for unexpected expenses, e.g., repairs to car, additional materials required for class, etc.

Is Vanessa’s spending within the budget guidelines? http://www.selu.edu/acad_research/programs/cse/finance/budget/

15%

5%

6%

8%12%

30%

other ex-pensesRecreationMedicalClothingTransporta-tionHousing

THE BEAN GAMELiving on a “20 Bean

Salary” Purpose Managing money means making choices. There is never

enough money available for all of the things we’d like to have or do. This game will help you decide what is most important to you.

Do the work and Answer the questions on your own paper.

How to Play Round 1: Each individual receives 20 beans and a

spending category sheets. The individual must decide how to spend their “income” based on life circumstances, values and goals. Each item has a set number of squares which indicates how many beans are needed to “pay” for that item.

Round 2…….

It is said that money brings happiness, - BUT (behold the ultimate truth) -

Money problems bring unhappiness that can stay with you for the rest of your life and affect your

relationships. Finances affects everything!- We are in an Anti Dowry period – you take debt into a

marriage instead of a dowry.Grandma's Advice Fix it up Wear it out Make it due or Due without.

Dave Ramsey Says: “Live like no other

today so that one day you will live like no other.”

Step 5 - ControlJoint Bank Accounts– Money is available to either the husband or the wife. Both

are free to make deposits and withdrawals at will. Separate Accounts– The two may each have their own account. In this method,

the couple divides the expenses up between the two.One Spouse Manages– One spouse gives the other money, as it is needed. Envelope Method (link)– In this method several envelopes represents the budget

categories. Each pay period money is placed in the assigned envelope until it is time for it to be spent/paid.

Step 6 - EvaluateMonthly review your budget

to see where changes need to be made. Evaluate how well you are meeting your financial goals.

gumball analogy

Income (money in) Net Worth (wealth) Flexible Expenses

(money out) Fixed Expenses

(money out)

Always have more money coming in than out!Work towards building wealth!

MONEY, MONEY, MONEY

Keep track of your spending and income for 2 weeks.–Every penny–Keep all receipts in an envelope

Complete the analysis questions.Record your budget spending

resultsCreate a new budgetWrite an analysis for this